How Does TurboTax Make Money?

What is TurboTax, and how does TurboTax work?

TurboTax, also known as Intuit TurboTax, is an American tax preparing software for filing federal and state taxes electronically.

Since being developed in 1984 by Michael A. Chipman, TurboTax was purchased by Intuit through a ChipSoft acquisition in 1993 for $225 million. Since then, TurboTax has gone on to become one of Intuits most profitable acquisitions.

Why isn’t TurboTax part of IRS Free File anymore?

TurboTax announced in a blog post last July that it was not renewing its role with IRS Free File due to its limitations and “conflicting demands from those outside the program” that leave it unable to continue participating while still delivering “all of the benefits that can help consumers make more money, save more, and invest for the future.”

However, the company vowed not to give up on free tax filing options. TurboTax said it processed 17 million free tax filings last season; of that, only 3 million came through the Free File program.

“Moving forward, Intuit is committed to continuing to offer free tax preparation while accelerating innovation to address all of consumers’ financial problems,” it added.

It’s worth noting that TurboTax came under fire a few years ago for using code that hid its Free File page from Google results, as reported by ProPublica. It later changed the code.


IRS Free File Program

TurboTax also offers an IRS Free File Program that is 100% free for filers who answer ‘yes’ to any of the following:

  1. Had an adjusted gross income (AGI) of $39,000 or less

  2. Was active duty military in 2020 with an adjusted gross income (AGI) of $72,000 or less

  3. Qualify for the Earned Income Tax Credit (EIC)

It’s reported that more than 14 million Americans, in 2020, paid for tax prep services, like TurboTax and others, who were eligible to file for free through the IRS Free File Program. Also noting that “Tax software companies made around $1 billion in revenue by charging people who were eligible to file for free.”

Source: TurboTax
Source: TurboTax

How Does TurboTax Make Money?

TurboTax provides a free version of its program to anyone earning below a certain amount and filing a relatively easy tax return. 

There is a certain amount of freeware included to encourage customers to upgrade later on.

Whenever you upgrade, you must obtain premium software. In addition, the organization charges users for the services of a dedicated agent who completes their tax return on their behalf.

Turbotax earns money by charging a fee for premium versions of its tax preparation software and offering tax professionals assistance.

TurboTax operates on a freemium model, which is why most of its products are free. There are two reasons for this:

  • The free version lacks some features, for example, which leads clients to upgrade.
  • To familiarize consumers with the platform to be familiar with how to use it when their tax situation becomes more complex.

In addition to the free version, there are three paid tiers: Deluxe, Premier, and Self-Employed.

A one-time fee is charged to each customer for any of the three alternatives. The price ranges from $60 to $120. 

Consumers must repurchase the program during the next tax-filing season because the charge is paid annually.

Premium versions offer additional features, including the ability to deduct profits from real estate, bonds, stocks, and cryptocurrencies, as well as the ability to deduct donations.

Thus, consumers who require assistance from a qualified tax expert can hire one of TurboTax’s tax consultants. Access to these experts is included in TurboTax’s three tiers.

Premium features include live guidance from a professional during the filing process, as well as an evaluation of submitted documents.

Let’s begin by examining the available premium editions:

  • Deluxe ($60): Those who want to maximize their deductions and credits can purchase a Deluxe plan.
  • Premier ($90): People with Individuals with rental or investment properties can go for the Premier plan.
  • Self-employed ($120): For sole proprietors whose income and expenses need to be reported.

Features of TurboTax Premium Plans

  • The following income sources are tax-deductible: real estate, gifts, bonds, stocks, and cryptocurrency.
  • Live chat assistance throughout the filing process.
  • Dedicated tax experts can assist consumers in preparing their tax returns. Documents are submitted to the system, which matches them with the most qualified expert. TurboTax says its tax specialists and certified practicing accountants (CPAs) have an average of 12 years of industry experience.

Also read, How Does Stitch Fix Make Money?

How Does TurboTax Work?

Filing your taxes with TurboTax is a fairly simple process. In the first step, the user keys in his or her email. Afterward, they are asked to answer a short survey about their financial situation.

The survey results allow TurboTax to determine what of its products is best suited for the needs of the user.

Users don’t need to provide their W–2s or 1099 details in the survey. TurboTax is able to automatically import that information from over a million employers and financial institutions.

For more complex tax situations it is advisable to provide additional documentation such as mortgage statements or medical expenses.

The TurboTax software then automatically finds possibilities for tax deductions. It scouts its database for over 400 possible applicable credits and deductions (e.g. student loans or donations to charities).

Because TurboTax Online is hosted on the cloud, progress on the tax deduction will be synched across all registered devices.

If the software isn’t enough, then users have the option to consult a certified tax professional during any step of the process. These experts are vetted by TurboTax to ensure quality advice. If users want to save that money, they can simply ask for help in a dedicated forum section.

If TurboTax has a free edition, what’s the difference?

In an email in July, an Intuit spokesperson told CNET that the company plans to expand the benefits of using its TurboTax Free Edition to “complete financial health in tax and beyond.” According to the representative, such an extension of services was not possible under IRS Free File rules. 

“TurboTax Free Edition is a different product than what TurboTax donates for free tax preparation through the Free File program,” they said. “The Free File program offered by Intuit is called IRS Free File delivered by TurboTax. They are fairly similar, but the Free File program guidelines do not allow us to do things like provide our filers with a completely free of charge advance on their refund if they need money faster in order to pay bills.”

A Better Way

The truth is, no one should profit on their access to the info you provide on your income taxes, so Ramsey Solutions launched Ramsey SmartTax, an inexpensive tax software that’s simple, accurate and safe.

“We partnered with the folks at TaxSlayer, and your data won’t be sold or used to sell you credit cards or anything else,” Dave said.

SmartTax has no hidden fees and no hidden agenda. It’s simple software to get your taxes done right the first time!

“Even though death and taxes may be a part of life, debt doesn’t have to be,” George said.

Learn how you can file your taxes with SmartTax!

How Much Money Could You Get?

The settlement will pay certain TurboTax customers roughly $30 for each tax year they paid to use the TurboTax Free Edition*, up to a maximum of three years. (Note that the refund amount is only about half of what a person would pay for the cheapest nonfree TurboTax plan, priced at $59 a year.)

Here are the criteria you must meet to be eligible for a payment:

  • When you used TurboTax. You must have used TurboTax’s Free Edition* to file your return in any of the 2016 through 2018 tax years.
  • You paid even though you could have filed for free. You were charged for the Free Edition*, but qualified for the no-cost version of TurboTax available through IRS Free File. You would have been eligible for that program if you earned less than around $34,000 per year or were a member of the U.S. military.

The largest possible refund is about $90, for all three tax years in question.

If you’re eligible to receive money from the settlement, officials say you don’t need to do anything to claim your funds. Notices and payments will be mailed automatically, says the release from the New York attorney general’s office.


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